NEW YORK ( TheStreet) -- Retail M&A is back in vogue.

The private-equity bids for J.Crew ( JCG), Gymboree and Jo-Ann Stores ( JAS) have triggered bullish sentiment in the sector, with speculation arising of other possible deals.

>>Retail M&A: 18 Possible Deals in 2011

Corporate deal making hit a six-year low in 2009 and just started to regain its footing in late 2010. Now Morningstar foresees a significant uptick in blockbuster deals in 2011.

Leveraged buyout will be one of the biggest themes, as private equity firms look to use dry powder before capital commitments expire. According to Preqin, a market research firm, private equity managers have over $400 billion at their disposal to invest in acquisitions, with around half of that being in the U.S. market.

A good chunk of acquisitions are also expected to occur overseas, as domestic companies look to establish themselves in emerging markets.

Retailers, in particular, have spent the recession deleveraging their balance sheets and hoarding cash. For many companies the mantra became "cash is king," and now they are looking to put that cash to work via acquisitions.

Almost every publicly traded retailer under $5 billion in market capitalization has been subject to private equity rumors. Retailers generally meet the typical leveraged buyout target portfolio of strong free cash flow generation and manageable debt obligations.

But given restrictive debt markets and steep equity retirements, Morningstar does not foresee many transactions larger than $5 billion being consummated in the near future, which limits the pool of takeover candidates.

While Wall Street is anxious not to miss the next big M&A targets, Morningstar advises not to be too quick with buying into a stock based on takeover rumors.

"M&A chatter is prompting talk about some combinations that we believe would be risky and potentially destructive to shareholder value," the firm said in a report.

As a result, Morningstar analyzed the takeover potential of companies across industries to weed out those deals that are highly unlikely. The firm assessed the companies in its consumer cyclical and defensive coverage universe for their attractiveness as takeover targets using four categories: size, capital structure, cash flow potential and management's willingness to consummate a deal or potential barriers preventing a takeover (such as an unfavorable ownership structures). In instances where it is strongly suspected that management may be exploring the sale of a company, Morningstar put additional weight behind its final takeover criterion, bringing many rumored candidates to the top of its prospective takeover list.

While Morningstar doesn't expect every name on the list to amount to a deal, it notes that "we believe the names on our lists generally exhibit characteristics of typical takeover target in each industry."

Read on to see which retailer is the most likely buyout target in 2011....

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